One way to explain the “What is your strategy” question to an investor

Inevitably when you get into second discussion with an investor you will get the question “What is your strategy for X”? The X could be mobile, pricing, customer acquisition, fund raising, etc.

What they are really asking is, have you thought through the various elements, documented your assumptions and have a point of view on the market that’s unique and different than others.

For larger companies with strategy teams and dollars to spend on McKinsey, the strategy question is usually delivered by means of a presentation with data to back up basic assumptions, historical trends and a prediction (again based on data), on 2-3 scenarios on what might happen in the future.

Given that most institutional investors have the rigor and background either in operational expertise (having been an entrepreneur before) or the experience with strategy in a far more detailed level than most entrepreneurs might, the question might intimidate you.

At the basic level, any discussion of strategy should be based on 3 things: Your idea of the landscape, your assumptions on what are the fundamentals and your vision for the future.

Strategy is not a pedantic or meticulous exercise in creating more PowerPoint slides though. Even if you explain it in a logical fashion with the 3 basic pillars of landscape, assumptions and vision, you should be good to go.

Lets take an example. I read the SouthWest Airlines strategy chart in a single “Activity System”, which is similar to what I have seen in many presentations.

SouthWest Airlines Strategy

So how did they come up with this chart?

First, as always, start with your customer. A day in the life audit will help you understand their “must haves” versus their “nice to haves”.

The most important thing I have learned so far is that it matters which customers you talk to. Talk to the late adopters and you will get the “Give me a faster horse” response.

Picking the right customers and documenting the vision for understanding the future is your first step.

Then you want to start to document what the world will look like in a few years (5, 10 usually suffice) but that “vision” is usually not that obvious. Most entrepreneurs tell me “I dont know what’s going to happen in 6 months, how can I tell you what’s going to happen in 5 years”?

That’s a fair statement, but a cop out. You have to come up with a view of the world and if you cant come up with one yourself, find a way to get to original thinkers in your domain and ask them to help.

The second step is to document the current state.Those will be the assumptions that are the key to revisit when questions come up. They also help you put the workable “plan” as opposed to a great set of strategy charts and graphs with no actionable information.